Internal Revenue Service
Revenue Ruling
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smRev. Rul. 59-78
1959-1 C.B. 690
IRS Headnote
A gift in trust for a minor under terms requiring the trustee to use the property for the benefit of the donee as if held by him as guardian of the donee constitutes a gift of a present interest and is, therefore, entitled to the exclusion under section 1003(b)(3) of the Internal Revenue Code of 1939.
Rev. Rul. 54-91, C.B. 1954-1, 207, distinguished.
Full Text
Rev. Rul. 59-78
Advice has been requested whether a gift in trust, under a trust instrument requiring the trustee to use the income for the support, education and benefit of a minor as though he (the trustee) were holding the property as guardian of the minor, constitutes a gift of a present interest so as to qualify for the exclusion provided for by section 1003(b)(3) of the Internal Revenue Code of 1939.
In the instant case, a gift was made in trust for the benefit of a minor donee. The trust instrument provided that the net income and principal be used for the support, education and benefit of the donee in such manner and amounts, and at such times, as accord with the needs and best intereest of the donee, as if the trustee held the property as guardian of the donee. The trust property not previously used for such purposes is to be distributed to the beneficiary upon his attaining the age of 21 years, and, in the event of his prior death, it is to be distributed to his estate.
Revenue Ruling 54-91, C.B. 1954-1, 207, holds that transfers in trust for the benefit of minor beneficiaries, but for their immediate enjoyment only in the uncontrolled discretion of the trustee, create only future interests, absent the appointment of a legal guardian. That position is based on the case of Arthur Stifel v. Commissioner , 197 Fed.(2d) 107. In that case, the trustee was given the power, in his discretion, to expend trust property for the minor donees' benefit as if such property were held by him as guardian of the donees and he were making such expenditure in that capacity. The court regarded the trustee's discretion as subject only to a power in the donees, excercisable through their legally appointed guardians, to demand such expenditures for the benefit of the donees; but that limitation on the discretion of the trustee was deemed ineffective because the power to demand expenditures could be exercised neither by the donees themselves nor by anyone empowered to act for them, in view of the disability of the donees and the fact that no guardian had been appointed for them. It would follow equally from the court's reasoning that the provisions in the trust instruments with respect to the exercise of the discretionary power to make expenditures as if the trustee were a guardian were also ineffective to limit the discretion of the trustee as to the expenditure or accumulation of the funds of the turst, and the opinion of the court did not even mention those provisions of the trust instruments. Since the minor beneficiaries had no enforceable right of immediate enjoyment, it was held that the gifts were of future interests only, under the doctrine of Fondren v. Commissioner , 324 U.S. 18, Ct.D. 1627, C.B. 1945, 421, and Commissioner v. Disston , 325 U.S. 442, Ct.D. 1642, C.B. 1945, 426.
The gift in the instant case is distinguishable from the tye of gift involved in the Stifel case and Revenue Ruling 54-91, supra , in that the trustee here does not have uncontrolled discretion whether to expend or withhold the funds of the trust but instead is directed to use both income and principal for the benefit of the donee, according to the needs and best interest of the donee, as if the trustee were the guardian of the donee. Similar transfers were involved in United States v. Baker , 236 Fed.(2d) 317, and were there held to constitute gifts of present interests which qualified for the statutory exclusion provided by section 1003(b)(3) of the 1939 Code. In that case the court viewed the transfers as conferring upon the beneficiaries rights to present enjoyment no different from those they would have had if the gifts had been made directly to each of them, or to a guardian for their benefit, and concluded that the gifts should be judged by the same standard as that applied to gifts to a guardian.
The Internal Revenue Service accepts the Baker decision as correct and will follow that decision in cases involving similar transfers. For the reasons stated earlier, transfers of the type involved in Stifel v. Commissioner, supra , and Revenue Ruling 54-91, supra , are regarded as distinguishable.
It is accordingly held that a gift in trust for a minor under terms requiring the trustee to use the property for the benefit of the donee as if held by him as guardian for the donee constitutes a gift of a present interest and is, therefore, entitled to the exclusion under section 1003(b)(3) of the Internal Revenue Code of 1939.